Arbitration boost for China as foreign centers set up shop
March 31, 2016 | BY
Katherine Jo &clp articles &The HKIAC, SIAC and ICC have opened rep offices in the Shanghai Free Trade Zone, a move that lawyers hope will raise the bar for Chinese and foreign-related disputes
Efforts to raise the standards of arbitration in China received a major breakthrough recently, with three of Asia's most popular centers setting up representative offices in the Shanghai Free Trade Zone (FTZ).
Although they will not administer cases on the mainland, the development will enable closer cooperation with local institutions, promote global arbitration and best practices, as well as provide professional training and raise awareness overall, said James Kwan, a partner at Hogan Lovells.
He was commenting after the Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC) and the International Chamber of Commerce (ICC) announced their Shanghai office openings on November 19, 2015, January 26, 2016 and February 24, 2016, respectively.
Although more Chinese companies are becoming amenable to arbitrating overseas, with the HKIAC, SIAC and ICC at the top of their list of international forums, Lijun Cao at Zhong Lun Law Firm said they remain more comfortable with selecting centers they are more familiar with. As of now, they prefer CIETAC [China International Economic and Trade Arbitration Commission], SHIAC [Shanghai International Arbitration Center] and SCIA [Shenzhen Court of International Arbitration a.k.a. South China International Economic and Trade Arbitration Commission], he said.
CIETAC's annual caseload has been sharply increasing since 2012, which was around the time Chinese outbound investment really took flight. Arbitrators continue to see a good deal of traditional overseas construction project-related cases, as well as a rise in technology scuffles, such as those regarding licensing.
“Several years ago nobody could imagine that foreign institutions would be able to set up in the mainland,” said Cao. “Even conducting foreign arbitrations in China was unfathomable,” he said.
Everything changed in 2013, however, when the Supreme People's Court (SPC) made its landmark decision in the “Longlide” case (Longlide Packaging Co. Ltd. v. BP Agnati S.R.L.). It involved a Chinese packaging company challenging a dispute resolution clause, which specified ICC arbitration in Shanghai, on the grounds of breaching the PRC Arbitration Law. The SPC dismissed the challenge and upheld the validity of the clause.
The ruling was a milestone for both foreigners and the arbitration circle in China, said Cao, adding that the Shanghai FTZ's opening up to foreign institutions only became possible after this decision by the SPC, which said foreign cases can have a seat in China.
“The Longlide enforcement was the most clearly-reasoned case that allowed the rendering of a foreign-related dispute award in the mainland,” said Brenda Horrigan of Herbert Smith Freehills.
There has been a more recent—and unpredictable—case not involving a foreign institution on the mainland, but rather two Chinese WFOEs [wholly foreign-owned enterprises] (Siemens International Trading (Shanghai) Co., Ltd vs. Shanghai Golden Landmark Co., Ltd) registered in the Shanghai FTZ, that was determined to be a foreign-related transaction when normally it would have been handled as a domestic dispute. “This raised the possibility that courts may be taking a broader approach to finding grounds for a foreign element,” Horrigan said.
The HKIAC, SIAC and ICC have long been hosting roadshows and seminars in China, but their formal establishments benefit everyone all around, said Kwan. “Not only can they promote international arbitration on the mainland, but they can also learn much from the local institutions, such as the practice of med-arb, of which the Chinese are experts,” he said.
Practitioners also said they hope that the three commissions' entry will allow for educating judges in rural areas, where courts' understanding of foreign-related disputes and the overall arbitral process is less sophisticated than those in top-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen.
But risks still remain and these developments, although positive, do not necessarily mean that every foreign award is enforceable in China. Enforcement is a separate battle, and for the purpose of this story, we will not discuss it here. See here and here for tips on how to get awards enforced in China.
|Aligning standards
The rules of the more prominent forums are similar for the most part – CIETAC just last year caught up with global trends by introducing emergency arbitration, consolidation, joinders and multi-contract proceedings in its 2015 Arbitration Rules – but there are subtle differences that parties may want to consider. One being that the ICC is very hands on in the scrutiny of administering awards, whereas the HKIAC has a lighter touch.
Practitioners pointed out that the institutions are all becoming progressive in terms of costs and transparency. The ICC, for example, publicly lists all its arbitrators on its website and penalizes those who unjustifiably delay in rendering awards beyond three months by cutting 5% to 20% of their fees, Kwan explained, and the HKIAC runs an evaluation system that allows parties to provide comments on the performance of arbitrators, who can also give feedback on their fellow panel members.
CIETAC operates differently in that it maintains a closed list of arbitrators that is renewed every few years. It doesn't explain why certain arbitrators get removed, but it is informally understood that it is due, among other things, to non-performance, said Herbert Smith Freehills' Horrigan.
|Weighing arbitration costs
The comparison tables below show the ICC as the most expensive choice. Most institutions charge based on the quantum in disputes, with the rate decreasing with higher claim amounts, though the HKIAC offers parties an alternative for remunerating arbitrators in hourly fees.
“We had an HKIAC case worth $400 million this year where the parties decided to pay in hourly rates as the workload wasn't too heavy—there were only six boxes of documents to go through,” said Kwan.
Arbitration administrative fees
Arbitrator fees
Source: HKIAC, dated August 2015.
For the institutions that distinguish between international and domestic cases, the figures represent the former. The SCC is the Stockholm Chamber of Commerce. Links to the institutions' fee calculators are provided below.
By Katherine Jo
More from CLP:
China question: How do I draft an arbitration clause?
Fee calculators:
CIETAC (foreign-related cases): www.cietac.org/index.php?m=Cost&type=out2015&l=en
Efforts to raise the standards of arbitration in China received a major breakthrough recently, with three of Asia's most popular centers setting up representative offices in the Shanghai Free Trade Zone (FTZ).
Although they will not administer cases on the mainland, the development will enable closer cooperation with local institutions, promote global arbitration and best practices, as well as provide professional training and raise awareness overall, said James Kwan, a partner at
He was commenting after the Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC) and the International Chamber of Commerce (ICC) announced their Shanghai office openings on November 19, 2015, January 26, 2016 and February 24, 2016, respectively.
Although more Chinese companies are becoming amenable to arbitrating overseas, with the HKIAC, SIAC and ICC at the top of their list of international forums, Lijun Cao at
CIETAC's annual caseload has been sharply increasing since 2012, which was around the time Chinese outbound investment really took flight. Arbitrators continue to see a good deal of traditional overseas construction project-related cases, as well as a rise in technology scuffles, such as those regarding licensing.
“Several years ago nobody could imagine that foreign institutions would be able to set up in the mainland,” said Cao. “Even conducting foreign arbitrations in China was unfathomable,” he said.
Everything changed in 2013, however, when the Supreme People's Court (SPC) made its landmark decision in the “Longlide” case (Longlide Packaging Co. Ltd. v. BP Agnati S.R.L.). It involved a Chinese packaging company challenging a dispute resolution clause, which specified ICC arbitration in Shanghai, on the grounds of breaching the PRC Arbitration Law. The SPC dismissed the challenge and upheld the validity of the clause.
The ruling was a milestone for both foreigners and the arbitration circle in China, said Cao, adding that the Shanghai FTZ's opening up to foreign institutions only became possible after this decision by the SPC, which said foreign cases can have a seat in China.
“The Longlide enforcement was the most clearly-reasoned case that allowed the rendering of a foreign-related dispute award in the mainland,” said Brenda Horrigan of
There has been a more recent—and unpredictable—case not involving a foreign institution on the mainland, but rather two Chinese WFOEs [wholly foreign-owned enterprises] (Siemens International Trading (Shanghai) Co., Ltd vs. Shanghai Golden Landmark Co., Ltd) registered in the Shanghai FTZ, that was determined to be a foreign-related transaction when normally it would have been handled as a domestic dispute. “This raised the possibility that courts may be taking a broader approach to finding grounds for a foreign element,” Horrigan said.
The HKIAC, SIAC and ICC have long been hosting roadshows and seminars in China, but their formal establishments benefit everyone all around, said Kwan. “Not only can they promote international arbitration on the mainland, but they can also learn much from the local institutions, such as the practice of med-arb, of which the Chinese are experts,” he said.
Practitioners also said they hope that the three commissions' entry will allow for educating judges in rural areas, where courts' understanding of foreign-related disputes and the overall arbitral process is less sophisticated than those in top-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen.
But risks still remain and these developments, although positive, do not necessarily mean that every foreign award is enforceable in China. Enforcement is a separate battle, and for the purpose of this story, we will not discuss it here. See here and here for tips on how to get awards enforced in China.
|Aligning standards
The rules of the more prominent forums are similar for the most part – CIETAC just last year caught up with global trends by introducing emergency arbitration, consolidation, joinders and multi-contract proceedings in its 2015 Arbitration Rules – but there are subtle differences that parties may want to consider. One being that the ICC is very hands on in the scrutiny of administering awards, whereas the HKIAC has a lighter touch.
Practitioners pointed out that the institutions are all becoming progressive in terms of costs and transparency. The ICC, for example, publicly lists all its arbitrators on its website and penalizes those who unjustifiably delay in rendering awards beyond three months by cutting 5% to 20% of their fees, Kwan explained, and the HKIAC runs an evaluation system that allows parties to provide comments on the performance of arbitrators, who can also give feedback on their fellow panel members.
CIETAC operates differently in that it maintains a closed list of arbitrators that is renewed every few years. It doesn't explain why certain arbitrators get removed, but it is informally understood that it is due, among other things, to non-performance, said
Weighing arbitration costs
The comparison tables below show the ICC as the most expensive choice. Most institutions charge based on the quantum in disputes, with the rate decreasing with higher claim amounts, though the HKIAC offers parties an alternative for remunerating arbitrators in hourly fees.
“We had an HKIAC case worth $400 million this year where the parties decided to pay in hourly rates as the workload wasn't too heavy—there were only six boxes of documents to go through,” said Kwan.
Arbitration administrative fees
Arbitrator fees
Source: HKIAC, dated August 2015.
For the institutions that distinguish between international and domestic cases, the figures represent the former. The SCC is the Stockholm Chamber of Commerce. Links to the institutions' fee calculators are provided below.
By Katherine Jo
More from CLP:
China question: How do I draft an arbitration clause?
Fee calculators:
CIETAC (foreign-related cases): www.cietac.org/index.php?m=Cost&type=out2015&l=en
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